How’s this for the ultimate co-op or condo buyer’s nightmare? They find one that checks all the boxes, make an accepted offer, have the inspection, close, move in and proceed to love their new home. Then sooner or later, out of nowhere, they’re basically ordered to pay tens of thousands more dollars, and if they can’t, the options are to sell or be forced into foreclosure.
It’s the dreaded “A” word for anyone occupying a building with multiple tenants, and it stands for assessment. For Florida condo owners it’s always lurked, but the specter of it becoming a financial catastrophe is relatively new. Since the collapse of Miami’s Champlain Towers in 2021, new laws enacted in 2022 have made condo ownership much more challenging. With strict inspection and reserve-fund requirements now in place, many condo associations are struggling to comply, and some buildings have yet to even complete inspections—despite the December 31, 2024 deadline.
A secondary blow to co-op and condo owners is skyrocketing insurance costs, and not just for Floridians. After disasters like Champlain, the California wildfires that destroyed thousands of homes and various floods and hurricanes in other parts of the U.S., some companies are either refusing to write new policies or are making them prohibitively expensive.
Single-family standalone homeowners have fixed mortgage costs with no surprise excess monthly maintenance bills. It is they who decide what gets fixed and when. Co-op and condo owners contribute homeowners association (HOA) fees to cover building upkeep, and must accept whatever their board decides must be done to the building.
RISMedia asked real estate professionals around the country who handle condo and co-op sales to explain what’s happening in their markets, and the challenges buyers and sellers face.
Philadelphia, Pennsylvania: Pam Rosser Thistle, Berkshire Hathaway HomeServices Fox & Roach, REALTORS®
“Condos and co-ops are a big part of the Center City Philadelphia market. There are some assessments, especially in condo buildings, depending on the age of the building, reserves and the need to be in compliance with guidelines. Buildings handle this in various ways. Sometimes, instead of the typical three months of condo fees for the capital contribution, which is paid when a buyer closes on a unit, it may be four or five months of condo fees that are required. More often there is an assessment that the owner can pay in a lump sum or over time. When the unit is for sale, the seller can offer to pay the assessment, or the buyer may take it over.
“Co-ops have this issue less frequently. They are generally very strict about checking the finances of potential buyers and hold high reserves. There have been some high assessments, but the buying and selling continues. It can affect the value. The bright side is that many condo and co-op buyers are cash buyers, so they can make it happen if the unit is a place that works for them.”
Dallas, Texas: Todd Luong, REMAX DFW Associates
“Inventory levels for condos have surged dramatically in the Dallas-Fort Worth market as buyer demand has weakened. In February, there were 1,584 condo units for sale, compared to 1,088 condo units exactly 12 months before that. This marks a staggering 45.6% increase in just one year. We currently have 6.4 months of supply for condos, compared to just 4.2 months a year ago, representing a 52.4% increase in condo supply over the past 12 months.
“High Homeowners Association (HOA) fees and insurance costs have made condos in the area much harder to sell. Severe weather in Texas has led to soaring insurance premiums across the state. These costs are ultimately passed down to property owners in the form of higher HOA fees. All of these factors are deterring buyers from purchasing condos, and prompting current owners to list their units on the market.
“Whenever I have clients interested in buying condos, the first thing we discuss is the potential challenge we may face in financing the purchase. I have a lot of experience working with condos that cannot qualify for Fannie/Freddie-backed mortgages due to low owner-occupancy rates. This is when a high percentage of units in the condo community are rented out rather than being owner-occupied. In these cases, the condo is considered non-warrantable and is ineligible for a Fannie/Freddie-backed mortgage. Condos like these will require a non-warrantable condo loan. That’s why it is crucial to understand this information early on and to work with a lender who is familiar with condo financing.”
San Jose, California: Tim Yee, RE/MAX Gold
“The San Francisco Bay Area condo market has not been a stellar performer in the real estate market. The inventory of condos has been consistently in the mid-2,000s for most of the last two years. The median price for condos is hovering just under $1 million. The market seems well suited to younger, single professionals, due to lack of maintenance issues, great proximity to most transportation and, often, walking distance to shopping, restaurants and entertainment.
“Thanks to California disclosure mandates regarding condos, townhomes and other similar projects, buyers receive a comprehensive package of disclosures, including HOA documents, budgets, reserve studies and tax considerations. Additionally, sellers have the same access to all the documents that a new buyer receives.
“Probably more concerning to condo buyers than special assessments is the rent versus own ratio in the complex, which could potentially disallow the buyer to potentially rent the unit in the future if the proper ratio is not met.
“I currently have a condo listing in escrow, and the sellers were aware of all back taxes, missed mortgage payments and outstanding assessments. Agents who represent condo buyers and sellers should absolutely make sure their clients are familiar with any upcoming special assessments. They should order all HOA docs including financials and reserve studies, if any, which would outline the strength of the HOA and if the building maintenance has been effective.
“Finally, I try to make it a point for my clients to familiarize themselves with the property management team and their potential neighbors, and ask them their perception of the unit and any potential negative feedback.”
Naples, Florida: Sue Pinky Benson, RE/MAX Alliance Group
“Condos are very slow moving in Florida due to assessments and higher insurance rates. Many are seeing such a big increase in their fees that they are more than mortgage payments. As for buyers, they are scrutinizing what they are paying for in fees, as they should be. Buyers should be carefully looking at what is covered and what is not covered. Make sure it’s in writing.
“Agents with knowledge in the condo market, especially in Florida right now, are going to talk about assessments up front with potential clients. On some of the third-party websites buyers may not see assessments listed, or the sites could use confusing verbiage that a buyer may not understand.
“Older buildings are the majority of properties with assessments, but there can be newer ones as well, especially with the last few hurricane seasons and damage done. Newer buildings tend to do better, but there are no guarantees that any building won’t be hit with assessments at some point.
“Naples is a unique market in the sense of ‘having to sell.’ Most clients in our area can afford any and all fees. We have more millionaires per capita than any other place in the country, with the exception of Park City, Utah. What we are seeing is buyers really questioning the worth of any and all fees being presented to them, asking, ‘What am I getting for this amount? Are there more coming in the future?’ But I have many partner agents across Florida with owners needing to sell because of the fees. Areas such as Clearwater, Sarasota and Cocoa Beach.”
Albany, New York: Jeffrey Decatur, RE/MAX Capital
“We don’t have a big condo market here. The few we do have though, typically if there is an assessment, the HOA board knows about it and legally has to give some notice to the homeowners. Typically, the homeowners have to vote. It is always a good question whenever dealing with a condo, co-op or HOA to ask (in writing) if there are any assessments or major improvements coming. Recently, an HOA board member sold a condo, knew there was a large assessment coming and didn’t disclose it. We found out from the neighbor the day we did an inspection. Luckily we were able to negotiate a remedy.”
New York City: Monisha Rana, Coldwell Banker Warburg
“In New York City, within 30 seconds the debate of condos versus co-ops becomes the forefront of the conversation. The current market has everyone, from real estate experts and politicians to neighbors and friends, predicting interest rates, property value and what the best ‘bang for your buck’ is. Truthfully, with all these opinions, one thing is certain: the market is just not predictable.
“Generally, those buying in NYC for the first time or who are new to the city tend to prefer condos. The preference doesn’t stem from anything other than that most of us don’t like to do things that make us uncomfortable. Condos are what we universally know. Condo-buying is straightforward, the buildings are newer, and many times they have better amenities. Sounds like a no-brainer, right? However, scratch past the surface and the answer becomes less obvious. First, there are more co-ops than condos, so the inventory of condos is much smaller on an absolute basis. Second, many new condos are commanding extremely high prices that suddenly make the older co-ops more appealing. The lower price points of co-ops and older, less expensive condos is where I have seen a lot more recent activity, especially in the sub-$4 million market (I know, only in NYC is that price point considered a first-time homebuyer’s budget; that is a different conversation).
“Let’s be clear: Very few first-time buyers come to me looking forward to the board package of a co-op. They don’t know all the nuances, but they know they don’t want to do one. Once the process begins, they get their mortgage pre-approval and realize what they can afford, which is a lot less than what it was a few years ago when they likely started saving. Most quickly decide that in today’s environment the cheaper co-op is the way to go.”
